Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It leads to a decrease in currency value.
B
It results in an increase in currency demand, leading to appreciation.
C
It has no effect on currency value.
D
It causes immediate depreciation of the currency.
Understanding the Answer
Let's break down why this is correct
Answer
When inflation decreases in a country, it means that prices of goods and services are rising more slowly or even falling. This situation makes the country's currency more valuable because it suggests that the economy is stable and people can buy more with their money. For example, if the United States has lower inflation compared to another country, investors might want to buy more U. S. dollars to invest there, which increases demand for the dollar.
Detailed Explanation
When inflation goes down, people want to buy that country's currency more. Other options are incorrect because Some might think lower inflation means the currency loses value; It's a common mistake to think inflation changes don't matter.
Key Concepts
Foreign exchange market
Inflation
Exchange rate mechanisms
Topic
Currency Appreciation Mechanisms
Difficulty
hard level question
Cognitive Level
understand
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